Driven Brands Holdings Inc. [DRVN] Filings

10-Q 1 drvn-20220625.htm 10-Q drvn-20220625

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-39898

Driven Brands Holdings Inc.

(Exact name of Registrant as specified in its charter)


Delaware
(State or other jurisdiction of incorporation or organization)


47-3595252
(I.R.S. Employer Identification No.)


440 South Church Street, Suite 700
Charlotte, North Carolina
(Address of principal executive offices)


28202
(Zip Code)

Registrant’s telephone number, including area code: (704) 377-8855


Title of each class
Common Stock, $0.01 par value


Trading Symbol
DRVN


Name of each exchange on which registered
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐
Non-accelerated filer ☒


Accelerated filer ☐
Small reporting company ☐
Emerging growth company ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its

internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public

accounting firm that prepared or issued its audit report. ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 1, 2022, the Registrant had 167,477,320 shares of Common Stock outstanding.

Driven Brands Holdings Inc.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			3
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income (Loss)			4
Consolidated Balance Sheets			5
Consolidated Statements of Shareholders’/Members' Equity			6
Consolidated Statements of Cash Flows			7
Notes to the Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			47
Item 4. Controls and Procedures.			47

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 5. Other Information			48
Item 6. Exhibits			49

Signatures			50

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management, and expected market growth are forward-looking statements. In particular, forward-looking statements include, among other things, statements relating to: (i) our strategy, outlook and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; and (iv) the competitive environment in which we operate. Forward-looking statements are not based on historical facts, but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions, and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, as supplemented by Item 1A. Risk Factors section in this Quarterly Report on Form 10-Q as well as in our other filings with the Securities and Exchange Commission, which are available on its website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements represent our estimates and assumptions only as of the date on which they are made, and we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Part I - Financial Information

Item 1. Financial Statements (Unaudited)

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three months ended				Six months ended
(in thousands, except per share amounts)	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenue:
Franchise royalties and fees	$	44,850	$	37,873	$	82,738	$	68,287
Company-operated store sales	323,885		206,198		616,276		390,053
Independently-operated store sales	54,942		56,379		118,031		112,542
Advertising contributions	22,091		19,648		41,789		36,903
Supply and other revenue	62,856		54,730		118,113		96,462
Total revenue	508,624		374,828		976,947		704,247
Operating Expenses:
Company-operated store expenses	192,939		123,820		370,806		236,575
Independently-operated store expenses	28,843		30,792		62,142		61,900
Advertising expenses	22,091		19,648		41,789		36,903
Supply and other expenses	35,800		29,598		68,574		52,087
Selling, general, and administrative expenses	97,977		77,935		190,197		146,984
Acquisition costs	3,338		389		7,656		2,038
Store opening costs	666		405		1,172		694
Depreciation and amortization	38,087		26,423		71,110		50,275
Trade name impairment charge	125,450		—		125,450		—
Asset impairment charges and lease terminations	(882)		2,178		16		3,431
Total operating expenses	544,309		311,188		938,912		590,887
Operating income (loss)	(35,685)		63,640		38,035		113,360
Other expenses, net:
Interest expense, net	26,270		16,612		51,623		34,702
Loss (gain) on foreign currency transactions	13,937		(5,229)		14,908		5,282
Loss on debt extinguishment	—		78		—		45,576
Other expense, net	40,207		11,461		66,531		85,560
Income (loss) before taxes	(75,892)		52,179		(28,496)		27,800
Income tax expense (benefit)	(18,848)		17,011		(5,880)		12,565
Net income (loss)	(57,044)		35,168		(22,616)		15,235
Net income (loss) attributable to non-controlling interest	—		(36)		(15)		(30)
Net income (loss) attributable to Driven Brands Holdings Inc.	$	(57,044)	$	35,204	$	(22,601)	$	15,265

Earnings (loss) per share:
Basic	$	(0.34)	$	0.21	$	(0.14)	$	0.09
Diluted	$	(0.34)	$	0.21	$	(0.14)	$	0.09
Weighted average shares outstanding
Basic	162,781		162,626		162,772		158,727
Diluted	162,781		166,512		162,772		162,271

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


	Three months ended			Six months ended
(in thousands)		June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Net income (loss)		$	(57,044)	$	35,168	$	(22,616)	$	15,235
Other comprehensive income (loss):
Foreign currency translation adjustment		(42,114)		11,411		(47,688)		2,168
Unrealized gain from cash flow hedges, net of tax		(225)		—		(93)		30
Defined benefit pension plan actuarial gain, net of tax		7		—		7		128
Other comprehensive income (loss), net		(42,332)		11,411		(47,774)		2,326
Total comprehensive income (loss)		(99,376)		46,579		(70,390)		17,561
Comprehensive income (loss) attributable to non-controlling interests		(19)		(1)		(21)		39
Comprehensive income (loss) attributable to Driven Brands Holdings Inc.		$	(99,357)	$	46,580	$	(70,369)	$	17,522

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)


(in thousands, except share and per share amounts)	June 25, 2022		December 25, 2021
Assets
Current assets:
Cash and cash equivalents	$	197,853	$	523,414
Restricted cash	792		792
Accounts and notes receivable, net	178,201		117,903
Inventory	53,124		46,990
Prepaid and other assets	47,964		24,326
Income tax receivable	5,070		6,867
Assets held for sale	3,275		3,275
Advertising fund assets, restricted	55,596		45,360
Total current assets	541,875		768,927
Notes receivable, net	5,092		3,182
Property and equipment, net	1,481,064		1,350,984
Operating lease right-of-use assets	1,031,731		995,625
Deferred commissions	10,738		10,567
Intangibles, net	733,469		816,183
Goodwill	2,108,002		1,910,392
Deferred tax assets	1,360		1,509
Total assets	$	5,913,331	$	5,857,369
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	115,424	$	83,033
Accrued expenses and other liabilities	253,742		297,620
Income tax payable	30,021		11,054
Current portion of long term debt	23,590		26,044
Income tax receivable liability	24,255		24,255
Advertising fund liabilities	30,264		26,441
Total current liabilities	477,296		468,447
Long-term debt	2,464,909		2,356,320
Deferred tax liabilities	223,336		257,067
Operating lease liabilities	969,598		931,604
Income tax receivable liability	131,715		131,715
Deferred revenue	39,829		37,576
Long-term accrued expenses and other liabilities	23,188		29,398
Total liabilities	4,329,871		4,212,127
Commitments and contingencies
Common stock, $0.01 par value, 900 million shares authorized: and 168 million and 167 million shares issued at June 25, 2022 and December 25, 2021.	1,677		1,674
Additional paid-in capital	1,614,927		1,605,890
Retained earnings	19,006		41,607
Accumulated other comprehensive loss	(52,796)		(5,028)
Total shareholders’ equity attributable to Driven Brands Holdings Inc.	1,582,814		1,644,143
Non-controlling interests	646		1,099
Total shareholders' equity	1,583,460		1,645,242
Total liabilities and shareholders' equity	$	5,913,331	$	5,857,369

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited)


in thousands	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders'/members' equity
Balance as of December 26, 2020	$	565	$	1,055,172	$	31,975	$	16,528	$	2,120	$	1,106,360
Net income (loss)	—		—		(19,939)		—		7		(19,932)
Other comprehensive loss	—		—		—		(9,085)		—		(9,085)
Equity-based compensation expense	—		983		—		—		—		983
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions	1,082		660,418		—		—		—		661,500
Common stock issued upon underwriter's exercise of over-allotment	48		99,177		—		—		—		99,225
Repurchase of common stock	(21)		(42,956)		—		—		—		(42,977)
Exercise of stock options	—		25		—		—		—		25
Establishment of income tax receivable liability	—		(155,970)		—		—		—		(155,970)
IPO fees	—		(14,757)		—		—		—		(14,757)
Other	—		—		—		—		(63)		(63)
Balance as of March 27, 2021	$	1,674	$	1,602,092	$	12,036	$	7,443	$	2,064	$	1,625,309












Net income (loss)	—		—		35,204		—		(36)		35,168
Other comprehensive loss	—		—		—		11,412		(1)		11,411
Equity-based compensation expense	—		1,028		—		—		—		1,028
At Pac divestiture	—		—		—		—		(948)		(948)
Other	—		(25)		—		(1)		—		(26)
Balance as of June 26, 2021	$	1,674	$	1,603,095	$	47,240	$	18,854	$	1,079	$	1,671,942

Balance as of December 25, 2021	$	1,674	$	1,605,890	$	41,607	$	(5,028)	$	1,099	$	1,645,242
Net income (loss)	—		—		34,443		—		$	(15)	34,428
Other comprehensive income (loss)	—		—		—		(5,455)		13		(5,442)
Equity based compensation expense	—		2,618		—		—		—		2,618
Stock issued related to Employee Stock Purchase Plan	1		2,091		—		—		—		2,092
Tax withholding on stock option exercises	—		(14)		—		—		—		(14)
Divestiture of Denmark car wash operations	—		—		—		—		(432)		(432)
Balance as of March 26, 2022	$	1,675	$	1,610,585	$	76,050	$	(10,483)	$	665	$	1,678,492
Net loss	—		—		(57,044)		—		—		(57,044)
Other comprehensive loss	—		—		—		(42,313)		(19)		(42,332)
Equity based compensation expense	—		4,233		—		—		—		4,233
Stock option exercised	2		109		—		—		—		111
Balance as of June 25, 2022	$	1,677	$	1,614,927	$	19,006	$	(52,796)	$	646	$	1,583,460

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six months ended
(in thousands)	June 25, 2022		June 26, 2021
Net income (loss)	$	(22,616)	$	15,235
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	71,110		50,275
Trade name impairment	125,450		—
Non-cash lease cost	35,049		37,938
Loss on foreign denominated transactions	14,908		5,707
Gain on foreign currency derivatives	—		(425)
Bad debt expense	936		1,739
Asset impairment costs	16		3,431
Amortization of deferred financing costs and bond discounts	4,565		3,619
Benefit (provision) for deferred income taxes	(31,908)		4,742
Loss on extinguishment of debt	—		45,576
Other, net	(1,925)		1,375
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net	(61,461)		(24,174)
Inventory	(6,899)		(396)
Prepaid and other assets	(19,082)		(20,885)
Advertising fund assets and liabilities, restricted	(1,321)		12,548
Deferred commissions	(178)		(809)
Deferred revenue	497		2,994
Accounts payable	20,209		3,860
Accrued expenses and other liabilities	(45,950)		9,707
Income tax receivable	19,640		3,665
Operating lease liabilities	(25,651)		(31,034)
Cash provided by operating activities	75,389		124,688
Cash flows from investing activities:
Capital expenditures	(148,763)		(46,222)
Cash used in business acquisitions, net of cash acquired	(394,388)		(205,556)
Proceeds from sale-leaseback transactions	56,083		49,166
Proceeds from sale of company-operated stores	—		5,775
Proceeds from disposition of car wash operations	1,551		—
Proceeds from disposal of property and equipment	632		—
Cash used in investing activities	(484,885)		(196,837)
Cash flows from financing activities:



Payment of debt extinguishment and issuance costs	—		(2,408)
Repayment of long-term debt	(9,682)		(712,649)
Proceeds from revolving lines of credit and short-term debt	105,000		213,800
Repayments of revolving lines of credit and short-term debt	—		(152,800)
Repayment of principal portion of finance lease liability	(1,156)		(1,127)

Proceeds from initial public offering, net of underwriting discounts	—		661,500
Net proceeds from underwriters' exercise of over-allotment option	—		99,225
Repurchases of common stock	—		(43,040)
Payment for termination of interest rate swaps	—		(21,826)
Stock option exercises	188		—
Other, net	(36)		152
Cash provided by financing activities	94,314		40,827


Effect of exchange rate changes on cash	(4,454)		1,813
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted	(319,636)		(29,509)
Cash and cash equivalents, beginning of period	523,414		172,611
Cash included in advertising fund assets, restricted, beginning of period	38,586		19,369
Restricted cash, beginning of period	792		15,827
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period	562,792		207,807
Cash and cash equivalents, end of period	197,853		147,257
Cash included in advertising fund assets, restricted, end of period	44,511		30,882
Restricted cash, end of period	792		159
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period	$	243,156	$	178,298


Supplemental cash flow disclosures - non-cash items:
Accrued capital expenditures, end of period	$	5,464	$	5,772
Supplemental cash flow disclosures - cash paid for:
Interest	$	51,491	$	38,966
Income taxes	$	5,457	$	5,531

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1—Description of Business

Description of Business

Driven Brands Holdings Inc., together with its subsidiaries (collectively, the “Company”), is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,600 franchised, independently-operated, and company-operated locations across 49 U.S. states and 14 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®, Meineke Car Care Centers®, MAACO®, CARSTAR®, and 1-800-Radiator & A/C® that compete in the automotive services industry. Approximately 77% of the Company’s locations are franchised or independently-operated.

Initial Public Offering and Secondary Offering in 2021

On January 14, 2021, the Company completed an initial public offering (the “IPO”) of approximately 32 million shares of common stock at $22 per share. On February 10, 2021, the Company’s underwriters exercised their over-allotment option to purchase approximately 5 million additional shares of common stock. The Company received total proceeds of $761 million from these transactions, net of the underwriting discounts and commissions.

The Company used the proceeds from the IPO, along with cash on hand, to fully repay the term loans and revolving credit facility assumed as part of the acquisition of International Car Wash Group (“ICWG”) in 2020 (collectively, the “Car Wash Senior Credit Facilities”), which totaled $725 million with interest and fees. The Company recognized a $46 million loss on debt extinguishment for six months ended June 26, 2021 related to this settlement, primarily related to the write-off of the unamortized discount. The Company cancelled the interest rate and cross currency swaps associated with these debt agreements as part of the settlement. The Company also used $43 million in proceeds to purchase approximately 2 million shares of common stock from certain of our existing shareholders.

On August 2, 2021, the Company filed a Registration Statement on Form S-1 for a secondary offering of approximately 12 million shares of common stock at $29.50 per share by certain of the Company’s stockholders, Driven Equity LLC and RC IV Cayman ICW Holdings LLC, each of which is a related party of Roark Capital Management, LLC. The Company did not sell any common stock in the offering and did not receive any proceeds from the offering. On September 8, 2021, the underwriters for the secondary offering exercised a portion of their over-allotment option and purchased 881,393 additional shares of common stock. The Company did not receive any proceeds from the exercise of the over-allotment option.

Income Tax Receivable Agreement

The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into an income tax receivable agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local and provincial income tax that the Company will actually realize. The income tax receivable agreement is effective as of the date of the Company’s IPO. The Company has recorded a total liability of $156 million as of June 25, 2022 and December 25, 2021, of which $24 million and $132 million are recorded under current and non-current liabilities, respectively.

Stock Split

On January 14, 2021, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation (the "Amendment") to effect an implied 88,990-for-one stock split of shares of the Company’s outstanding

common stock. In addition, the Amendment increased the number of authorized shares of the Company's stock from 10,000 shares to 1 billion shares (900 million shares of common stock and 100 million shares of preferred stock). All share and per-share data in the consolidated financial statements and footnotes has been retroactively adjusted to reflect the stock split for all periods presented. The Company does not have any shares of preferred stock outstanding.

Note 2— Summary of Significant Accounting Policies

Fiscal Year

The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three and six months ended June 25, 2022 and June 26, 2021, each consist of 13 weeks and 26 weeks, respectively. The Car Wash segment is currently consolidated based on a calendar month end.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of operations, balance sheet, cash flows and shareholders’ equity for the interim periods presented. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

These interim consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 25, 2021. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and six months ended June 25, 2022 may not be indicative of the results to be expected for any other interim period or the year ending December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.

Deferred IPO costs

Costs incurred that are directly related to the IPO, such as legal and accounting fees, registration fees, printing expenses, and other similar fees and expenses, totaling $9 million were capitalized and included within prepaid and other assets as of December 26, 2020. Upon completion of the IPO, the Company reclassified these costs, as well as an additional $6 million of IPO costs incurred during the six months ended June 26, 2021 to Additional paid-in capital within the statement of Shareholders’/members’ equity.

Fair Value of Financial Instruments

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

•Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

•Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or

•Level 3: Inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Financial assets and liabilities measured at fair value on a recurring basis as of June 25, 2022 and December 25, 2021 are summarized as follows:


Items Measured at Fair Value at June 25, 2022
(in thousands)	Level 1		Level 2		Total
Mutual fund investments held in rabbi trust	$	766	$	—	$	766
Foreign currency derivative assets designated as hedging instruments	$	—	$	1,030	$	1,030

Foreign currency derivative liabilities designated as hedging instruments	$	—	$	304	$	304
Foreign currency derivative liabilities not designated as hedging instruments	$	—	$	1,528	$	1,528


Items Measured at Fair Value at December 25, 2021
(in thousands)	Level 1		Level 2		Total
Mutual fund investments held in rabbi trust	$	976	$	—	$	976




Foreign currency derivative liabilities designated as hedging instruments	$	—	$	536	$	536

The fair value of the Company’s foreign currency derivative instruments are derived from valuation models, which use Level 2 observable inputs such as quoted market prices, interest rates and forward yield curves. Derivative assets are included in Prepaid and other assets or Notes receivable, net in the consolidated balance sheet depending on the remaining period to maturity. Derivative liabilities not designated as a hedging instrument are included in Accrued expenses and other liabilities in the consolidated balance Sheet. Derivative liabilities designated as a hedging instrument are included in long-term accrued expenses and other liabilities in the consolidated balance sheet.

The carrying values of cash, restricted cash, and receivables included in the consolidated balance sheet approximate their fair value. The fair value of long-term debt is estimated based on Level 2 inputs using discounted cash flows and market-based expectations for interest rates, credit risk and contractual terms of the debt agreements.

The carrying value and estimated fair value of total long-term debt were as follows:


	June 25, 2022				December 25, 2021
(in thousands)	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Long-term debt	$	2,488,499	$	2,311,046	$	2,382,364	$	2,411,987

Accumulated Other Comprehensive Income (Loss)

The following tables present changes in each component of accumulated other comprehensive income (loss), net of tax:


	Three months ended June 25, 2022
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance as of March 26, 2022	$	(9,770)	$	(626)	$	(87)	$	(10,483)
Net change	(42,095)		(225)		7		(42,313)
Balance as of June 25, 2022	$	(51,865)	$	(851)	$	(80)	$	(52,796)


	Three months ended June 26, 2021
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance at March 27, 2021	$	7,591	$	(57)	$	(91)	$	7,443
Net change	11,411		—		—		11,411
Balance as of June 26, 2021	$	19,002	$	(57)	$	(91)	$	18,854














	Six months ended June 25, 2022
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance as of December 25, 2021	$	(4,183)	$	(758)	$	(87)	$	(5,028)
Net change	(47,682)		(93)		7		(47,768)
Balance as of June 25, 2022	$	(51,865)	$	(851)	$	(80)	$	(52,796)


	Six months ended June 26, 2021
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance as of December 26, 2020	$	16,834	$	(87)	$	(219)	$	16,528
Net change	2,168		30		128		2,326
Balance as of June 26, 2021	$	19,002	$	(57)	$	(91)	$	18,854

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022. The Company is evaluating the impact of adopting this new accounting guidance and does not believe it will have a material impact on the Company’s consolidated financial statements.

Note 3—Acquisitions and Dispositions

The Company strategically acquires companies and assets in order to increase its footprint and offer products and services that diversify its existing offerings. These acquisitions are accounted for as either business combinations or asset acquisitions, whereby the purchase price is allocated to the assets acquired and liabilities assumed, based on their fair values as of the date of the acquisition.

2022 Acquisitions

The Company completed 12 acquisitions in the Car Wash segment during the six months ended June 25, 2022, representing 17 sites, which were deemed to be business combinations. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $164.7 million. On June 14, 2022, the Car Wash segment acquired Jimmy Clean Car Wash, which was comprised of 3 sites for a total consideration of $31.9